What is a flat‑fee financial advisor?
A flat fee is the second-most common way for financial advisors to make money, according to an Envestnet study. Flat-fee financial advisors charge a fixed dollar amount for their services, rather than an asset-based fee that can change as the value of your investments increases or decreases.
The average AUM fee is 1.05%, Envestnet found, though some firms tier their fees so that as your balance rises, your fee percentage goes down.
A flat-fee model offers predictability and can be more affordable for those with high balances. It can also help limit conflicts of interest. For example, a financial advisor who earns an AUM fee has an incentive to advise you to keep assets in the accounts they manage for you, because it earns them more money. A flat-fee advisor, on the other hand, charges the same fee whether you keep your assets in an investment account they manage or you use some of that money to buy a new house or start a business.
How flat‑fee pricing models work
There are a few different flat-fee pricing models that firms or individual advisors can use. Some charge a single flat fee or project-based fee for a one-time financial plan or an annual retainer for ongoing services. Hourly fees are also somewhat common.
The services you’re looking for will determine which pricing model is right for you. Paying an annual or retainer fee could make sense if you want to work with your advisor on an ongoing basis. If you want the advisor to create a financial plan for you or advise on your current investing strategy, a project-based or hourly fee might be a better fit.
How to decide if a flat‑fee model suits your financial needs
One of the main drawbacks of advisory firms that offer investment management for a flat fee is that clients with lower balances pay a larger share of their assets compared to those with higher balances.
For example, if a firm charges a flat fee of $5,000 and you have a balance of $100,000, you’re paying 5% of your assets for investment management, while a client with a $1 million balance pays 0.5%.
If you have a large portfolio, a flat-fee model might be the more cost-effective option. You’ll also want to look for a flat-fee advisor if you don’t want investment management. You can search online for flat-fee or advice-only advisors to find reputable firms in your area.
Methodology
Buy Side analyzed some of the largest and most well-known independent RIA firms and scored those firms based on their fees, credentials, customer support, available services, portfolio construction and account minimum. These factors were weighted based on WSJ reader surveys regarding what they considered most important. We singled out high-scoring firms that offer some form of flat-fee services, including both flat-fee investment management and stand-alone financial planning.
FAQ
Are flat‑fee financial advisors always fiduciaries?
Flat-fee financial advisors can be fiduciaries, but they aren’t always. Fiduciary financial advisors have an obligation to act in the best interests of their clients. Registered investment advisers (RIAs) have a fiduciary duty to their clients under federal law, but other financial professionals might not have a similar obligation. You can ask if a financial advisor is a fiduciary or if they’ll sign a fiduciary oath.
How much do flat‑fee advisors typically charge?
The average flat fee is $2,554, according to Envestnet. However, this can vary quite a bit from one advisor to the next, and it depends on the exact fee model type they use. The average annual retainer fee, for example, is $4,484.
Do flat‑fee advisors offer investment management or only planning?
Some financial advisors offer investment management for a flat fee, but among the larger firms, it’s not as common as an AUM fee. In some cases, firms that charge AUM fees for investment management also offer flat-fee options for stand-alone financial planning.
What’s the difference between flat‑fee and AUM pricing?
AUM pricing means you’ll pay a percentage of your assets each year to your advisor. If an advisor charges 1% AUM to manage $500,000 for you, you’ll pay $5,000 each year for that service. If your balance increases to $800,000, you’ll pay $8,000 a year.
A flat fee is a fixed dollar amount that you might pay on a regular basis (such as annually) for ongoing services or as a one-time fee for a single project (such as creating a financial plan or making investment recommendations). If a flat-fee advisor charges $5,000 a year for investment management, that’s what you’ll pay regardless of how much you have in your account.
Can I switch from a percentage‑based advisor to a flat‑fee advisor easily?
The process for changing financial advisors can vary a bit depending on your agreement with your current firm, but it’s generally relatively easy to make the switch. Your contract should detail how termination is handled, and your new advisor can help facilitate transferring your assets, if needed.